Telecom bidding concludes
The Ministry of Telecommunications has announced that it has concluded the bidding round for the second installment of the ministry’s project to build Lebanon’s modern Internet infrastructure. The ministry awarded the contract to the Swedish company Ericsson, in part because its bid of $6.3 million was the lowest price of the five competing companies. The project specifications cover the supply and installation of DWDM multiplexers, equipment that allows signals to pass along fiber optic cables. Bids by Tellabs and UTL were thrown out because their “administrative files were not complete” and ZTE was disqualified because it did not meet the ministry’s technical specifications. The project has been criticized in the past by United Nations International Telecommunications Union experts for being overpriced and badly structured.
GDP forecast drops with cabinet demise
The longer it takes, the worse it will get. That was the sentiment of most international financial institutions that commented on the collapse of Lebanon’s cabinet last month. JP Morgan slashed its Gross Domestic Product estimate for Lebanon in 2011 following the collapse of the cabinet, as did the International Institute of Finance, with each lowering their forecasts to 4 percent and the former expecting political negotiations to last several months. Before the cabinet dissolved, GDP calculations from the United Nations Economic and Social Commission of Western Asia were set at 5.6 percent, down from 6.7 percent in 2010. Credit Suisse expected the crisis to affect the country’s creditworthiness but anticipated that it would be contained by Lebanon’s strong financial standing. EFG Hermes noted that because the cabinet was in a state of paralysis anyhow, its downfall did not represent a short-term risk to the economy but, down the line, risks were likely to increase. Barclays Capital noted that the cabinet’s downfall meant that the much-needed reforms and expenditures associated with the 2011 budget would be delayed and could put pressure on interest rates and the government’s borrowing costs. It estimated that the finance ministry would need to roll over some $3.4 billion in foreign currency debt at these new rates but also noted one ‘silver lining;’ the lack of budget expenditures would keep the fiscal deficit in check.
A moderately free economy
Lebanon’s economy is “moderately free.” At least, that was the reading of the United States’ right-wing think-tank Heritage Foundation, which posted its global Index of Economic Freedom last month in collaboration with The Wall Street Journal. Lebanon was ranked 83rd out of 183 countries in terms of its economy’s freedom and eighth among 17 countries in the Middle East that were surveyed. The term “moderately free” was an upgrade from the 2010 index reading that classified the country as being “mostly unfree.” The index evaluated 52 independent economic variables and 10 broad factors to come up with its results. Lebanon ranked one notch below Greece.
A water plan for another government
Before his resignation from cabinet last month, then-Minister of Energy and Water Gebran Bassil unveiled the long-awaited plan to reform the country’s water infrastructure. The plan seeks to provide citizens with a flow of 1.8 billion cubic meters (BCM) by 2035, which would cover the current deficit, the minister claimed. According to Bassil, during a dry year water demand can outstrip the annual supply of 1.2 BCM by some 283 million cubic meters (MCM). If measures are not taken the average annual deficit is expected to rise to 600 MCM by 2035, he warned. The total investments needed to realize the plan were set at $7.7 billion, with an additional $2.2 billion in expenditures over the next 10 years. Noting that $1.6 billion has already been pledged, the minister expects the rest to come from a combination of sources that include the government budget, the private sector and international organizations. The plan would increase Lebanon’s storage capacity to approximately 670 MCM from the current 235 MCM. It also seeks to increase the amount of treated wastewater that can be reused from the current 6 percent to 80 percent by 2015 and 95 percent by 2022. The current practice of one-time annual fees charged to consumers would be phased out by increasing the percentage of users with water counters to 25 percent by next year and 75 percent by 2015, with the rate of bill collection to increase to 60 percent from the current 47 percent, and up to 80 percent by 2015. The minister also revealed that only a third of the 4,050 employees required to fill the organizational structures of regional water establishments are currently employed.
Energy round up
Transfers of funds to Electricite du Liban dropped significantly during the first 11 months of last year, but may soon see another rise with the cabinet’s collapse. The latest figures from the finance ministry released last month showed a 22 percent drop in transfers to $1.06 billion. The fall was attributed to the relatively low price of fuel oil imported from the Kuwait Petroleum Company and the Algeria’s Sonatrach — the Lebanese government’s only two suppliers — compared to 2009, as well as a 27 percent drop in the quantity of imports. That import drop is the result of fuel oil being substituted by Egyptian natural gas, the delivery of which to the Deir Ammar plant via a pipeline from Syria began in November 2009. According to the finance ministry, supply was halted on November 5 of last year even though the previous cabinet approved the December payment. EDL has yet to make the disbarment, the ministry stated, and the cabinet will need to approve future payments to Egypt in order for Lebanon to continue receiving natural gas. The lack of a cabinet decision to improve the Lebanese energy sector’s fiscal situation precedes the current political crisis, as the previous cabinet failed to ratify a credit line on a concessional loan to help Lebanon cover its energy expenditures, as agreed upon with the Arab League’s Arab Monetary Fund (AMF) in December 2008. Last month the AMF extended a $45 million concessional loan to the government with a rate of LIBOR plus 1 percent. Meanwhile, last month the energy ministry also unveiled its national energy efficiency strategy that seeks to reduce the country’s energy expenditure by 1 percent every year for the next five years and plans to make good on the promise Lebanon made at the Copenhagen climate conference last year to produce 12 percent of its power output through renewable sources by 2020.
Tourism passes two million
For the first time in Lebanon’s history, the number of tourists arriving in the country over a period of one year has surpassed two million. According to the Ministry of Tourism, the number of visitors during 2010 reached 2.17 million, a 17.12 percent increase from 2009. The numbers were bolstered by a high number of arrivals during the holiday season in December, reaching nearly 900,000 tourists, a 14 percent increase on the previous year. Of total visitors, other Arab nationalities topped the list with some 895,000 (41.27 percent), followed by Europeans (25.35 percent), Asians (17.23 percent) and tourists from the Americas (11.47 percent).
FDI levels off
Foreign direct investment in Lebanon (FDI) saw a slight contraction last year, a possible indication that the economic ceiling has been reached. The total amount of FDI estimated by the World Bank for 2010 was $4.65 billion, a decline of 3.2 percent on 2009 ($4.8 billion) but still more than 2008 ($4.33 billion). The downward trend is consistent with the fall of FDI throughout the region, which contracted by 12 percent in 2010 compared to the previous year, hitting $28.4 billion. Lebanon still accounted for the highest estimated ratio of FDI to gross domestic product in the Middle East and North Africa at 11.9 percent (down from 13.7 percent in 2009) and ranked second in total investment, behind Egypt’s $6.5 billion. FDI to the country accounted for 16.4 percent of all investment in the MENA region, up from 15 percent in 2009. The bank also estimated Lebanon’s current account deficit at 23.6 percent of GDP in 2010, compared to a surplus of 0.3 percent for the MENA region. The World Bank calculated GDP growth at 8 percent in 2010, putting Lebanon even with Yemen as the fastest-growing MENA economy among a total of nine low and middle-income countries in the region.
